Foreign Relations of the United States, 1958–1960, Foreign Economic Policy, Volume IV

325. Memorandum of Conversation⁰

February 18, 1958.

SUBJECT

• Strategic Controls

PARTICIPANTS

• Sir Harold Caccia, British Ambassador
• Mr. Paul Henry Gore-Booth, British Deputy Under Secretary of State
• Mr. G.F. Thorold, British Economic Minister
• Mr. Douglas Dillon, Deputy Under Secretary of State for Economic Affairs
• Mr. T.C. Mann, Assistant Secretary of State for Economic Affairs
• Mr. Willis C. Armstrong, Director, OR
• Mr. E.G. Moline, Deputy Director, BNA
• Mr. Myron Black, Officer in Charge Economic Organization Affairs, RA

Mr. Gore-Booth said that he wanted to consider the matter of strategic controls. He had prepared himself for the discussion by going through the whole story with his people in London. He observed that changes in this field usually come by spasms and that we appeared to be due for another one. He noted that the United States and the United Kingdom are some distance apart in their positions. There were three aspects of the matter which he wished to discuss: (1) strategic concepts, (2) political considerations and (3) economic effect. In connection with the first, he referred to certain military strategic concepts which have been approved in NATO. He pointed out that the British military establishment has given full endorsement to these concepts, and he noted that the U.S. had also approved them in NATO. [71/2 lines of source text not declassified]

Mr. Gore-Booth then discussed the political aspect of strategic controls. He said that the clamor for commercial opportunities in England has stimulated a demand for relaxation of controls, which, when coupled with general impressions of the technological achievements of the Soviet Union, made it impossible for the government to take a position favoring the status quo for controls, or a more rigid system. He said that he recognized that a relaxation of controls would not, in fact, bring much growth in trade, and that the political point was primarily psychological.

He then turned to the economic aspect of controls and said that his impression from the material presented to him was that the U.S. favored a broad program of economic warfare. The British question was whether you could do very much damage to the Soviet Union by this process. He noted that some of the goods now being embargoed by western countries are also being exported by the Soviet Union, such as aluminum. He said that the UK had recently talked with economic experts of all the Commonwealth countries, and had discovered that none of these countries would go along with any kind of general program of economic warfare and, indeed, felt that underdeveloped countries needed Soviet aid. Consequently, the UK is convinced, both from its commercial contacts and its own experience, that a wholesale approach to deterring Soviet growth and development would not work. He also noted that, while the UK was much interested in preventing Soviet economic penetration of underdeveloped areas, it did not feel that there was any likelihood of intensified trade controls having any effect on Soviet capabilities in this field. Furthermore, in most cases the underdeveloped countries themselves were sophisticated about dealing with the Russians.

Mr. Dillon said in response that he was pleased to have the opportunity to clarify the U.S. views on this matter. He noted that the discussion of List II quotas last autumn had led the U.S. to conclude that there was need for a new look at the whole control picture, and this intensive review had proceeded within the government for several months. The review was not focused on criteria, which have generally been dedicated toward blocking the Soviet military effort, and no significant changes in criteria have been or are being proposed by the U.S. The emphasis of the U.S. effort during the past several months had been on developing a set of proposals for modifying the lists, which would correspond to the best intelligence data and the latest expert opinion on technical and military implications. The result of this examination had been to remove a lot of items from the list, including, for example, items which the Soviet Union itself exports. We had proposed a very few items for embargo which had previously been on List II because the new list applies as a whole to Communist China as well as the Soviet Union, and there are special items, such as jet fuel, in which Communist China is deficient and the Soviet Union is not. We feel, in view of our special defense responsibilities in the Far Eastern area, that it is necessary to limit the supply of jet fuel in the hands of the Chinese Communists. We had nevertheless proposed dropping List II as a general concept, and had proposed that we retain List III, under a modified set of ground rules.

Mr. Dillon then said that Mr. Gore-Booth’s remarks had shown that there is a real difference of opinion in military thought and concept, which is at the root of the difference of opinion between the U.S. and UK regarding the level, nature, and purpose of controls. We had originally thought that the entire pressure for modification of controls within the British Government originated in the Board of Trade for commercial reasons, but we were now interested to learn that the British position was based on the position of the Ministry of Defense. Mr. Dillon noted that we certainly agree that priority in attention should be given to the items which would contribute to the availability on D Day of goods and equipment, but our Chiefs of Staff also believe that we should not neglect items which would be useful in a period subsequent to the initial thermonuclear exchange. Also, they feel that the military industrial potential is most important in connection with the possibility of conventional or semi-conventional warfare in the area of the Middle East or Far East, although we recognize the improbability of conventional or semi-conventional warfare in the European area. Consequently, from a military standpoint we feel that exclusive emphasis on the point selected by the British Ministry of Defense is incorrect, and that a proper military view should also take into account supplies for the subsequent period and the capacity of the Sino-Soviet military industrial complex to wage conventional warfare, especially in Asia.

Mr. Dillon then dealt with the political problems of the Executive Branch in dealing with this matter. He noted that the whole Mutual Security concept is based on the theory that it is a bulwark against Soviet expansion. He said that a substantial open break between the U.S. and its allies over trade controls, or an agreement on the part of the U.S. to a serious downward reduction of trade controls, might well lead to considerable harm to the aid program at a time of crucial importance in its consideration by the Congress. He did not wish to hazard a guess regarding the results. He observed further that this problem is different from the problem regarding the China differential, because it has to do with the nature of our general policy toward the Sino-Soviet Bloc, and not with a question of a difference of opinion regarding one aspect of the whole problem.

Mr. Dillon then went on to consider the relationship of strategic controls to Sino-Soviet economic penetration of the underdeveloped areas. He said our views were not too different from those of the British. We think that this is the most serious aspect of our struggle with the Soviet Union at this time. He emphasized that we do not believe in broad-scale economic warfare but rather in a selective approach. He said our proposals were designed precisely for this purpose. He added that we have no intention of suggesting to third countries that they do not engage in trade with or accept aid from the Soviet Union. Our domestic problem of obtaining approval for trade agreements legislation and of obtaining funds for foreign aid are closely related, however, to the question of a general western policy response to the Soviet economic challenge, and it is difficult to persuade people of this if we are at the same time asked to agree to a serious and damaging modification of controls.

Mr. Dillon concluded his remarks by saying that obviously the U.S. did not wish any open break on this issue, and that some ground for agreement must be found. He said that he had a personal feeling that it was much easier to deal with this matter in terms of an item by item approach to the lists, rather than to argue one theory or another. He said we are considering the whole matter at the NSC level to determine whether there is any basis for arriving at some form of compromise position. He did hope that the British position has sufficient latitude so that, given a willingness to arrive at an agreement, there can be some mutually agreeable compromise.

Mr. Gore-Booth said Mr. Dillon’s statement of the U.S. position had made the matter very much clearer, and he could see that a good deal of the argument turned on the question of what is a strategic material. He had noted that the U.S. proposal called for a reduction of about 29 items from the 181 in List I. He said that the British view was that the list could be approximately cut in half to about 93. Mr. Dillon said that an American reading of the British paper had led to the conclusion that the British had intended to abolish the list entirely, except for 31 items, whereas we felt we were making a significant reduction in proposing the elimination of about 40 items, rather than 29. Mr. Dillon and Mr. Gore-Booth agreed that further analysis by both the U.S. and UK would be useful in determining the extent to which there is a real disparity in position. He commented wryly that while it is in the U.S. interest to take as long as possible to work out the situation, because of pressures it is to the British interest to conclude the matter as rapidly as possible.

Mr. Moline said that he thought the discussion had thus far failed to mention one significant aspect, which is that too much emphasis on what both sides would have available on D Day, or thereafter, overlooks the need to consider the material and technical position of the two sides in the period before D Day. Mr. Dillon emphasized the importance of this point.

Mr. Gore-Booth raised a question as to whether it was in our power to do very much with this problem, in terms of restraining the Soviet Union. Mr. Dillon agreed that further analysis of the impact of the trade control program was always in order, but noted that U.S. intelligence sources indicate that the program has been effective in restraining Soviet growth and development. Mr. Mann raised the question as to whether the western world should act in such a way as to facilitate meeting the needs of the Soviet population, or of Communist China, or whether it should move in the opposite direction. Mr. Gore-Booth said that he wondered whether the trade control device was the right piece of machinery, assuming that it was our objective not to facilitate meeting the needs of the Soviet population.

Mr. Dillon and Mr. Gore-Booth agreed that it was desirable to avoid endless argument on criteria, and that it would be advisable for both sides to take a mild attitude on the question of criteria at the COCOM discussion beginning on the 20th. Mr. Gore-Booth said his government would consider U.S. views seriously and respond in due course. He could not predict the reaction of his Ministry of Defense. He would consider whether the UK could put emphasis on the list review. It was noted that care would have to be taken regarding the sensitivities of the French, and possibly those of other countries concerning the situation. It was agreed that the best place for technical discussions was COCOM.

0. Source: Department of State, Central Files, 460.509/2–1858. Secret. Drafted by Armstrong on February 21 and approved by Dillon on March 26.